Harmonization, preferences, and the calculus of consent in commercial and other law

Abstract

Local, disparate preferences are normally satisfied by variety in law, but in some circumstances, harmonization can bethe means by which a majority advances its members' local preferences. One unappreciated method involves the imposition of external costs by a majority on a minority. In its most common and extreme form, a majority imposes a tax on the population in order to finance a benefit that is limited to the majority. The asymmetry between burdens and benefits may be sufficiently great to generate inefficient expenditures. It is more difficult but not impossible to impose external costs through regulation. Commercial law is not free from this danger, because it reflects preferences about consumer protection, which is to say such things as wealth distribution and paternalism, and it pits interest groups against one another, as in the case of employees and tort claimants in the event of bankruptcy. Commercial law is therefore an area where groups might sometimes gain from diversity in legal rules, but might at other times find that harmonization allows a majority to benefit yet more. It is therefore difficult to know whether harmonization, which has many other causes, is beneficial or corrosive. When the majority of voters are relatively homogeneous, as is arguably the case among member countries in the European Union, the possibility of harmonization - or simply centralized decisionmaking - as a means of imposing external costs seems especially likely. There are means of reducing the danger, but harmonization itself should be expected to increase the influence of the central bureaucracy.